Ethannol's future

Former Gen. Wesley Clark has led battles in Kosovo and Bosnia, but the four-star NATO commander's focus is on another fight he says is brewing across the nation's home front.

His mission: to advance an industry that has helped bolster areas of rural Kansas.

He's ethanol's new general.

"It's all about national security," the co-chairman of trade group Growth Energy said during a stop at The Hutchinson News last week. "You can't keep this country safe with just a bunch of guys running around with M16 rifles and Kevlar. It is not enough. You have to have the right policies."

On Monday, Clark was at member plant Kansas Ethanol in Lyons to talk to residents and investors. He stressed the need to take a stand on a proposal by the Environmental Protection Agency that would reduce the mandated amount of biofuels that goes into the nation's fuel supply.

Kansas leaders have already testified against the reduction. In early December, Utica corn grower and agriculture lender Dennis McNinch told an EPA panel that cuts would hurt family farmers, rural communities, consumers and the environment.

Kansas has more than a dozen ethanol plants, which provide jobs for more than 400 people. It also provides countless jobs for many side industries that surround the plants - such as the farm community and the trucking industry.

But Kansas isn't the only battleground regarding the EPA proposal introduced last month that would cap the renewable fuels standard for 2014. It's drawing strong opposition by national farm, ethanol and biodiesel organizations across the country.

National Corn Growers officials have said the proposal caps corn-based ethanol at 13 billion gallons, a cut of 1.4 billion gallons. Such cuts could equal a 25-cent a bushel decrease to corn prices.

"That does add up," said McNinch, who was back in Ness County last week. "Obviously if ethanol demand doesn't increase for exports or in the marketplace, ethanol plants will have to ramp back production. Like any business, the weak ones will fall to the wayside," he added. "It will definitely have an impact."

From $2 corn

The pitch seems irresistible: run cars on grain-based fuel, boost the economy and keep U.S. money out of foreign hands.

And for some declining stretches of rural Kansas, ethanol has been an economic boon.

McNinch is a fourth-generation farmer who is senior vice president of lending at Farm Credit of Ness City. Testifying before the EPA panel, he told of what the farm economy was like when he started out as a lender during the 1980s farm crisis - a time marked by foreclosures and bankruptcies. Corn was hovering around $2 a bushel.

At that time, he had hoped to return to the family farm. Then, however, it wasn't profitable.

"I spent most of my time collecting loans instead of making them," McNinch testified Dec. 5. "The economic impact on the heartland was devastating - not only to agriculture as it was felt on Main Street America as well.

"If you were to ask me what one thing contributed the most to those hard times I would tell you that it was the lack of demand for the grain we produced. Simply put, we did not have enough end-users for our grain that could create value."

By the 1990s, farmers were showing a profit, he told the panel, but most wouldn't have shown a profit without government payments.

He said things began to change as ethanol plants came into production, driving corn prices higher.

"All of a sudden, it created a value that floated a lot of boats," he said. "Other commodities went up with it."

Kansas ranks ninth in ethanol production, producing about 448.5 million gallons of ethanol a year, according to the Renewable Fuels Association. The plants use about 160 million bushels of grain. Production has augmented in just a dozen years when only a few plants were producing across the state.

According to the Kansas Association of Ethanol Processors, a 100 million-gallon ethanol plant results in 45 direct jobs and 101 indirect jobs for an area.

Ethanol production uses roughly 17.5 percent of the crop - the starch is what is used to produce fuel, said Dave Kerr, a former Kansas lawmaker and an investor in Lyons' Kansas Ethanol.

The remainder produces distillers grain, a livestock feed, as well as other byproducts.

As more plants came into production, McNinch notes a change across Midwestern Farm Belt. And grain prices have been high enough that farmers haven't had to rely on loan deficiency payments - a government subsidy triggered when prices fall below a certain level.

"It's really healed the farm economy," McNinch said. "The prosperity, the new equipment, buildings and grain bins, dealerships that either have remodeled or built new - anyone tied to agriculture has done well the past four or five years. And you can trace that back to ethanol."

Energy independence

Nevertheless, at present, future growth of the industry in Kansas is hazy.

Last week, Clark helped reopen Pratt Energy in Pratt, in hopes of getting people to call their congressional leaders about keeping the standard at the current level. Pratt was a bankrupt plant thatremained idled for more than five years. It was brought back into productionSeptember by Scoular Co. and a group called Pratt Biofuel Investors.

Plant Manager Jerry Schroeder,however, doesn't expect to see other corn-based ethanol plants coming onlinewith the uncertainty in the industry.

"I think it is a good industry, and I think it is here to stay," he said, but added that future growth would more than likely be in cellulosic ethanol - like the plant under construction in Hugoton - not necessarily plants using corn and sorghum.

Reno County resident Kerr said companies operating today are seeing good demand for ethanol and most are operating in the black.

But it's not just farmers and plants that have seen windfalls from ethanol's growth, Kerr added, noting that reduction of a mandate could mean an increase for consumers at the pump.

Center for Agricultural and Rural Development out of Iowa State University estimates ethanol reduces gasoline prices by nearly a $1 a gallon at the wholesale level. Merrill Lynch analysts determined that gas prices would be 15 percent higher without ethanol growth, which would amount to about 60 cents more a gallon.

Clark remains optimistic, calling the renewable fuel standard a "good, strong patriotic" energy policy. After all, he noted, three wars in 20 years involving U.S. troops have been directly or indirectly about oil.

Clark said the nation spends about $400 billion dollars annually on importing oil.

"If it is a cutback, it will hurt all of us - not just the people in the ethanol industry," Clark said. "It will hurt the ordinary Americans. It is going to raise the price of gas at the pump. It's going to decrease the amount of dollars that flows out of the economy and depress economic growth in the United States.

"It's going to increase the likelihood that, once again, we will be sending troops to far off lands to fight for a commodity that we can produce at home," he said.